NFRA imposes Fine of Rs.2 Crore on Deloitte Haskins for lapses in ZEEL Audit

The National Financial Reporting Authority (NFRA) has imposed a Rs 2 crore penalty on Deloitte Haskins and Sells, along with fined two chartered accountants for audit failures at Zed Entertainment Enterprises Ltd (ZEEL) during FY2018-19 and FY2019-20.

CA A B Jani has been fined Rs.10 lakh by the NFRA and banned from being appointed as an auditor or internal auditor for the next five years, as well as from conducting any audit in relation to financial statements or internal audit of the functions and activities of any firm or corporation.

In addition to slapping a Rs 5 lakh fine, the regulator has banned CA Rakesh Sharma from working as an auditor for three years. Jani was the Engagement Partner (EP), and Sharma was the Engagement Quality Control Review (EQCR) for the ZEEL audit from FY2019 to FY2020.

The Chairman of ZEEL in September 2018, who is also the promoter of the Essel Group of Companies, wrote to Yes Bank, committing ZEEL’s Rs.200 crore fixed deposit as a guarantee for loans made by Yes Bank to a promoter group company, Essel Green Mobility Ltd, according to the NFRA in a 30-page order.

In July 2019, the bank appropriated the fixed deposit (FD) to settle loan amounts owed by seven promoter group companies. The creation and maintenance of FD, as well as its reappropriation by the bank, were not approved by the company’s board of directors or shareholders, the order stated.

The statutory auditors did not detect and report the misrepresentation, according to the order.

“Our examination revealed that the auditors were grossly negligent, failed to apply professional scepticism and due diligence, did not adequately challenge the assertions of management, and failed to evaluate reporting of suspected fraud,” said the regulator.

This was evidenced by unlawful guarantees/securities, the Bank’s premature closure of the FD, and the unauthorised use of ZEEL’s money to settle the loan of the promoter group companies, all with the knowledge of the group’s Chairman and ZEEL management, according to the NFRA.

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